• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing

A Barrel of Tasty Small-Caps

One hedge fund has taken sizable stakes in these names, so let's take a closer look.
By MEENA KRISHNAMSETTY Feb 03, 2013 | 01:00 PM EST
Stocks quotes in this article: SYA, KALU, CBST, HCBK, HUN

When it comes to stocks that garner the most attention from the media and institutional investors, large- and mega-cap names tend to snag the spotlight as smaller-cap stocks fly under the radar. We believe this results in mispricing -- and it turns out that hedge funds are often successful in finding undervalued companies when they look at small-caps. We have estimated that, among hedge funds, the most popular small-cap stocks have an alpha of about 120 basis points per month. We began testing this theory in our August newsletter, listing the stocks that met this criteria, and our mock portfolio proceeded to return about 20% between early September and mid-January.

We can also turn to the picks of individual funds as free suggestions, and take a quick glance at them before we decide whether they're worthy of further research. As an example, in the most recent 13F SEC filing of billionaire Michael Price's MFP Investors, here are five stocks that (at the time of filing) had market capitalization of between $1 billion and $5 billion.

To start with, MFP reported a position of 1.8 million shares in Symetra Financial (SYA), an insurance company with a $1.9 billion market cap. In terms of valuation, this stock is quite cheap: It trades at only 10x consensus earnings for 2013, and at about half the book value of its equity. Of course, investors shouldn't buy stocks just because they are cheap. But, as with hedge-fund ownership, low price-to-earnings and price-to-book metrics are a good guide to finding attractive companies. Symetra also reported 16% year-over-year revenue growth in the third quarter of last year.

Price and his team also owned about 300,000 shares of Kaiser Aluminum (KALU), an unchanged stake from that of three months earlier. Kaiser -- which manufactures aluminum products that are used as inputs in other industries -- trades at 14x both trailing and forward earnings. Sales and net income have been higher here, as well, though revenue growth has been modest.

The fund kept its holding in Cubist Pharmaceuticals (CBST) about constant, as well, at just over 180,000 shares. Cubist is a $2.8 billion market-cap name and, much like the other companies we've mentioned, its last reported quarter saw higher revenue and net income vs. the prior year. Sales, for example, were up 16%. Wall Street analysts expect high growth over the next several years, given the five-year P/E-to-growth (PEG) ratio of 0.7. However, many investors are not convinced, as 14% of the outstanding shares are held short.

MFP cut its stake in Hudson City Bancorp (HCBK), but the stock still remained one of the fund's top small-cap picks. There is a small discount to book value here, as the stock carries a P/B ratio of 0.9, and it does pay a 3.7% dividend yield at current levels. Still, this is one pick for which financial performance hasn't been strong of late -- earnings fell 34% in the third quarter -- and we think it might be best to avoid it.

Rounding out the top five MFP small-cap picks was chemical company Huntsman (HUN). This is another cheap stock, with its trailing and 2013 earnings multiples at less than 10x, though sales have been down slightly. We would also warn investors that demand for Huntsman's products depends on the broader economy, given that it is a chemical name, so the stock has a beta of 2.2. But, as with Symetra, we think Huntsman looks like a good value prospect, and we would be interested in taking a closer look at the company.

-- Written by Matt Doiron

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Krishnamsetty and Doiron had no positions in the stocks mentioned.

TAGS: Investing | U.S. Equity

More from Investing

Is Lululemon About to Stage a Recovery?

Bruce Kamich
May 26, 2022 10:47 AM EDT

With the stock almost cut in half in the past six months the right conditions may be in place for a rally.

Don't Underestimate the Fed

Ed Ponsi
May 26, 2022 10:00 AM EDT

Chairman Jerome Powell is focused on bringing down inflation, and that could bring down the economy with it, which won't be good for stocks.

I Still Dig Nvidia After Digging Into Its Latest Results

Stephen Guilfoyle
May 26, 2022 9:31 AM EDT

The company remains in an elite class among semiconductor makers and its first-quarter report does nothing to dispel that notion.

Teekay Tankers Breaks Out of a Large Base Formation

Bruce Kamich
May 26, 2022 9:03 AM EDT

The technical signs for the marine energy transportation and storage company are flashing positive.

Snowflake Continues to Melt

Bruce Kamich
May 26, 2022 8:45 AM EDT

With the stock lower again off earnings, we're checking the charts again.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 11:33 AM EDT PETER TCHIR

    Thoughts Ahead of the Fed Minutes

    Recent economic and earnings issues are convincing...
  • 02:24 PM EDT PAUL PRICE

    An Interesting Chart

    I'm betting heavily that stocks will be way up aga...
  • 10:10 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    "Market Timing for Dummies"
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login